S 31ST R C - ocmc.ohio.gov

1 OHIO CONSTITUTIONAL MODERNIZATION COMMISSION FINANCE, TAXATION, AND ECONOMIC DEVELOPMENT COMMITTEE THURSDAY, JUNE 4, 2015 1:30 SOUTH MEETING ROOM A, 31st FLOOR RIFFE CENTER FOR GOVERNMENT AND THE ARTS AGENDA I. Call to Order II. Roll Call III. Approval of Minutes Meeting of March 12, 2015 IV. Reports and Recommendations None Scheduled V. Presentation State Debt and State Constitutions: Ohio and the Nation Professor Richard Briffault Joseph P. Chamberlain Professor of Legislation Columbia Law School Public Comment VI. Committee Discussion Briffault Presentation Committee discussion regarding issues raised in the presentation by Professor Briffault.

2 Metcalf Presentation Continuing discussion regarding presentation by Seth Metcalf, Deputy Treasurer and General Counsel, Ohio Treasurer of State, at the March 12, 2015 committee meeting. VII. Next Steps Committee discussion regarding the next steps it wishes to take in preparation for upcoming meetings. VIII. Old Business IX. New Business X. Public Comment XI. Adjourn OHIO CONSTITUTIONAL MODERNIZATION COMMISSION 1 MINUTES OF THE FINANCE, TAXATION, AND ECONOMIC DEVELOPMENT COMMITTEE FOR THE MEETING HELD THURSDAY, MARCH 12, 2015 Call to Order: Chairman Cole called the meeting of the Finance, Taxation, and Economic Development Committee to order at 1:40 Members Present: A quorum was present with committee members Cole, Amstutz, Asher, Clyde, Davidson, Mills, Peterson, and Trafford in attendance.

3 Approval of Minutes: The minutes of the January 15, 2015 meeting of the committee were approved. Presentation: Financial Transparency and Modernizing Article VIII Seth Metcalf Deputy Treasurer and General Counsel Ohio Treasurer of State Seth Metcalf, Deputy Treasurer and General Counsel of Ohio s Treasurer of State, presented testimony before the committee regarding the modernization of Article VIII (Public Debt and Public Works), relating to the public debt provisions of the Ohio Constitution. He stated that Article VIII serves two main functions: (1) authorizes Ohio to incur debt with certain limitations, and (2) sets forth the platform by which Ohio issues and pays its debt.

4 Mr. Metcalf explained that Article VIII authorizes debt and sets forth mechanisms for paying debt. He said that the sheer length of the article causes a reduction in the transparency that was adopted as part of the constitution in 1851. 2 Mr. Metcalf continued by discussing two fundamental defects of Article VIII: 1) The $750,000 debt limitation as set forth in Section 1 has existed since its adoption. He compares the state s general revenue expenditures in 1851 ($ million) to 2014 ($ million). He believes the state needs to borrow more than $750,000.

5 2) Section 2 has been amended 18 times, which creates a complicated addition to Article VIII for the general public to comprehend. Mr. Metcalf noted, as of June 30, 2014, the state s total indebtedness was approximately $ billion. He claims this amount demonstrates how insignificant the $750,000 debt limitation has become. Mr. Metcalf again touched on the point of how Article VIII has become nearly incomprehensible which has created a transparency and accessibility problem. He said the voluminous language obfuscates the meaning of the article.

6 According to Mr. Metcalf, in 1851, Article VIII s $750,000 cap represented 46 percent of the state s general revenue expenditures. Today, the debt is $ billion, represents roughly 38 percent of the state s general revenue expenditures. Members of the committee questioned Mr. Metcalf if transportation bonds and the turnpike appropriations were included in the $ billion. He indicated those fiscal items were not a part of the general revenue expenditures. Mr. Metcalf also explained that there is currently no constitutional provision on how much debt in the aggregate the state can borrow or for how long the state can borrow it.

7 Chair Cole asked whether Mr. Metcalf has compared state debt to the size of the economy, and whether there are any figures he can cite about that relationship. Mr. Metcalf said he doesn t have those statistics, but can get them. Committee member Rep. Ron Amstutz asked whether Mr. Metcalf is differentiating between types of debt, for example does the 5 percent limit include highway debt? A member of the Office of Budget and Management, present at the meeting, said that highway debt is not included in that limit. Committee member Kathleen Trafford asked whether these numbers include revenue bonds as opposed to true debt.

8 Mr. Metcalf stated that lease appropriation debt is a revenue debt; it is inside the number given. He said other bonds such as the conduit issue debt are not included. He also said the Ohio Turnpike is not included. Chair Cole asked whether these items would have been included in 1851. Mr. Metcalf said that would have been a point of interpretation, as there was no distinction then between direct and indirect obligations. 3 Mr. Metcalf clarified he is only advocating for overall debt cap and overall debt obligations to be provided for. He said that if something is paid for from the general revenue fund, it has been treated as a direct obligation of the state for purposes of the 5 percent cap.

9 Chair Cole asked whether this could be accomplished by using average maturities. Mr. Metcalf said there are a variety of ways to get to that. Mr. Metcalf explained why some items are appropriately excluded; stating that, to the extent the state is not obligating taxpayers to pay back a debt with taxes, there isn t a constitutional obligation. Chair Cole asked why Mr. Metcalf advocates keeping the war veterans provisions. Mr. Metcalf said the state must retain its commitment to veterans. He said the committee could state in new language that it is okay to issue debt to compensate veterans to thank them for their service.

10 Mr. Metcalf added that the growth of Article VIII has undercut another piece of the Ohio Constitution: the Commission of the Sinking Fund. Article VIII creates a Sinking Fund Commission meant to oversee the debt status of the state, but the amendments currently in Section 2, have delegated the responsibilities of the Commission to either the General Assembly or the Public Facilities Commission. This has transferred the accountability of the statewide executive officeholders from the constitution to statute. He claims that a constitutional check has been eroded and that the Commission of the Sinking Fund has been circumvented by these amendments.